Corporate Governance and Political governance deficit-the similarities

In 2010/2011, several scams rocked the Indian political scenario right from the mother of them all(2G spectrum allocation, Karnataka mining licenses, Adarsh housing society etc). Chief Ministers were dismissed, inquiry commissions set up and heads rolled. The media gleefully credited their reporting and publicity as a deterrent factor. All that was to change when the spurt of corporate scams errupted. Just recouping from the FY09 Satyam scam, multiple scams were exposed right from the mining licenses(Jharkhand, Karnataka), land acquisition(for SEZ, projects), Radia tapes, bribery, cases etc. While some CEOs were arrested/dismissed(Gautam Doshi, Everonn CEO, Money Matters, LIC Housing Finance), industry forums were quick to pass them off as rotten apples. But on deeper reflection, one should not have been surprised for these scams. After all, the inconvinient truth is that corporate governance reflects the society it resides in. And the common reasons are

• No separation of powers:-Like how most political parties are one man shows, so are most companies. The CEO-Chairman position is not separated.
• First past the post:-Like how 30% voting share is often enough to win seats, the same is true for companies as well. As there is no proportional representation, the shareholders with even 30% voting power can often control the Board easily.
• Redistribution focus over governance:-Few Indians would genuinely expect their MP/MLA to debate larger issues in the assembly/parliament, at the cost of giving attention to local issues. Similarly, investors do not expect their directors to show exquisite coalition dharma viz corporate governance; but instead expect share price maximization
• Opaque funding/controls:-like how political parties benefit from anonymous contributions and exempt income, often without tax returns scrutiny; company promoters benefit from related party transactions that enable major siphoning out of funds. 

However, there are major exceptions also

•   Contest ability is much more in politics than in companies, where hostile takovers are quite rare. Companies can be defeated at the market place, but rarely are corporate power battles(especially takeover bids) fought in public.
• Coalition dharma is much more relevant in companies than at the assemble level in politics. While the company must juggle the interests of workers, investors, employees, government(at the bare minimum!!), the politician is often content with jugging the interests of his voters(or atleast appearing to do so).

This analogy is so relevant that next time we blame the Government for anything, it is better to take a hard look at our corporates, to see whether we are committing the same sins or not.